Little-known credit card facts

Most credit cards come with a grace period that’s somewhere around 21 days but it’s retracted if you don’t pay your balance in full.

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by Gail Vaz-Oxlade
December 18th, 2012

Online only.

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People have all kinds of misconceptions about credit cards that end up biting them in the butt. If you’re going to use any tool to your advantage, you’ve got to read the instruction manual first. You wouldn’t start up a chain saw without having a look at the safety warnings would you? So you shouldn’t be so willing to whip out that credit card without looking at the safety rules first.

Most credit cards come with a grace period that’s somewhere around 21 days. But that only applies if you pay your balance in full. Leave so much as a one-dollar balance and you’ll be charged interest on all your purchases back to the day they were made or posted.

Low-interest cards are another carrot. But if you don’t make at least your minimum payment within 30 days of your due date, you’ll watch your rate sky-rocket. It can take eons to get that great rate back, if you ever do.

Payments aren’t always applied in the order of your purchases. While you may have bought those shoes before you took that cash advance, there are different rules for different types of transactions. You’ll have to get out your magnifying glass and read the mouse print to see how your card distributes your payments.

Promotional rates don’t last forever. As soon as the promotion period expires, your card will revert to its usually much higher rate. A 1.7% rate may look good now, but if you’re going to end up paying 24.99% later, that balance transfer may not be such a good idea. If you’re being offered a special rate, make sure you mark the expiry date on your calendar–and have the balance paid off–before the big guns come out.

Perhaps the biggest myth that will end up hurting you is the belief that your credit limit reflects what you can afford to spend. There is no co-relation between how much you can afford and how much the credit card company will offer you. Regardless of the limit you are given, it is up to you to spend only as much as you can afford to repay. And the best way to know that? Already have the money in the bank before you whip out your credit card to pay. Failing that, you’re revving up that chain saw without your safety gear on.

7 comments on “Little-known credit card facts

  1. The only reason to use a credit card at all would be to get some small rewards and pay it off in full each month. Otherwise, the interest rates, even the low rates, are going to cost you.

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  2. also to save using debit card or w/d cash. bank accounts get pricey when you make alot of transactions, it also acts as a short term free loan in a sense and builds a credit score

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  3. why are the credit card companies still charging anywhere from 18 -21 % when the borrowing rate or line of credit is around 3-5 % .no wonder the banks are so rich.

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  4. As you say, they will give you a limit that is much higher than you can afford. In fact, this is a necessity if you have to use the credit card for business travel. Although you personally could not afford to fly to Vancouver, Calgary, Thunder Bay, Montreal, Halifax and Charlottetown this week, you may need to charge all those flights until your employer reimburses you.

    So be careful to not let them set a limit too high for your spending needs. If you don't use the card for business, phone them and ask them to drop the limit on the card to something safer, maybe $500 or $1000.

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  5. The best use of a credit card is to occasionally make small, modest charges and pay off the debt each month, on time. That avoids interest payment and helps build (or restore) credit.

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  6. Credit Cards charge a higher interest rate than a Line of Credit because most of the time Line of Credits are secured loans against your home while Credit Cards are unsecured. If you want a longer grace period than 21 days, then you might want to take note of your credit card's billing cycle. If you check the date of your last purchase on your statement, note that date and make your purchases a day or so after that so you will get almost a month's grace period. For example if your last purchase on you statement is on the Dec.12, 2012 and you received your statement in the mail on Dec.15, you will have to pay that amount on Jan.3, 2013. But if you mad a purchase on Dec. 14 or Dec. 15, you will have to pay for that purchase on the next billing cycle on Feb.3, 2013. That's a month and a half using the credit card companies money.

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  7. What a fantastic statement shared about credit cards facts that is really awesome. I am really instructive after reading this valuable description about credit cards. This will be really useful for knowing credit cards facts. I like it. Thanks

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